Private banks are now offering fine art investment advice

The typical qualifications of a private banker might be a degree in maths or economics and several years’ experience managing money. These days, though, a degree in fine art and several years’ experience curating art collections could be just as useful.

The world’s wealthy are flocking to auction houses, dealers and art fairs in ever greater numbers — with global sales up 12 per cent in 2017 compared to the previous year, according to a survey of high net worth individuals by investment bank UBS and consultancy Art Economics — and demanding their private bankers know how to help them appraise, manage and use their collections to finance their lifestyles.

“I am constantly surprised by how much money there is chasing art,” says Steve Kettle, head of client management at family office Stonehage Fleming. “It is a very sexy industry and it is very seductive. As a family office, we act as gatekeepers, to temper clients’ enthusiasm.”

The 2017 survey by UBS revealed that 35 per cent of high net worth individuals were active in the art and collectible markets. The wealth of the high net worth constituency as a whole is forecast to rise to some $106tn by 2025, indicating the potential for growth in investment in art.

Global art sales reached almost $64bn in 2017 according to the survey. Record-busting auction figures, including the sale of Leonardo da Vinci’s “Salvator Mundi” in 2017 for $450m at Christie’s, and soaring prices are being driven by the richest collectors. “You’ve seen amazing prices on almost an exponential curve upwards over a very short time,” says Ben Williams, head of UK lending at JPMorgan Private Bank.

Between 2007 and 2017 the auction market for works priced up to $1m declined in value, Arts Economics figures show, but sales of works of more than $10m rose 148 per cent and 125 per cent year-on-year in 2017.

“Today, our art finance customers have sizeable collections. It’s not uncommon for them to be worth hundreds of millions or up to $1bn. And for people who have been collecting for a long time, things they bought for £300,000 are now worth £80m,” says Suzanne Gyorgy, global head of art advisory and finance at Citi Private Bank.

The pool of advisers, intermediaries and dealers has swollen in response. Among them are private banks and wealth managers, offering increasingly diverse services, from advice on which pieces to buy to how best to store and transport fine art.

Private banks have long offered loans against wealthy individuals’ art collections as a way of unlocking money from illiquid assets. The size of loans has been soaring as the value of customers’ art has increased. Gyorgy says the value of the loans Citi offers against art has increased by 10-15 per cent in each of the past 10 years.

Many private banks now have art advisory units with a register of former curators, gallerists and other art specialists. Citi Private Bank set up its unit in 1979 and made its first hire in the art field in Hong Kong three years ago to serve the Asian market. Today, Citi’s seven-strong team includes former curators and advises on pieces to buy and where to exhibit, as well as planning issues such as inheritance and succession.

“We don’t have banking training in the art advisory team,” says Gyorgy, who herself trained at art school before working at the Museum of Modern Art in New York and for various private collectors and museums. “We are a team of people that have worked in museums and auction houses, and our education is all in the arts. We’ve been working with collectors and collections for our whole careers, which is important because the art market is unregulated.

“When you’re collecting you need to know the ins and outs of who the players are, what galleries you’re working with and the nuances of the market. This isn’t something you can just google,” she adds.

The opaque, subjective nature of the art market means the value of a piece can fluctuate just by dint of being, or not being, included in certain exhibitions, for example. This makes managing the value of a collection a delicate task and puts a premium on advisers with expert knowledge.

When you’re collecting you need to know the nuances of the market. This isn’t something you can just google

“Lots of paintings are enhanced by being exhibited,” says Michael Maslinski, group head of strategy and knowhow at Stonehage Fleming. “And in the same way, they can be diminished if they are put in the wrong exhibitions.”

Maslinski says his firm’s art management division, which was set up 10 years ago, is “one of the most successful things we’ve ever done”.

Stonehage’s art management service co-ordinates the myriad advisers working on a client’s collection, including auction houses, logistics companies, museums and tax advisers.

Maslinski and his colleague Kettle say that as the number of intermediaries competing to advise on customers’ art collections grows, so too does the importance of having an independent actor such as a private bank to oversee a collection. Private banks and wealth managers, they point out, have no ties to auction houses or dealerships and act on behalf of their clients in a fiduciary capacity. “We co-ordinate all the moving parts. We deal with things from the provenance of a painting to checking it isn’t fraudulent, to the painting’s correct documentation, to conservation and restoration as well as insurance and valuations,” says Kettle. “The art market is all about saying yes, but we often say no in order to slow down the collector and make him think strategically,” he adds.

As the art market has become globalised and has moved increasingly online, areas of management surrounding money laundering and fraud have taken on greater importance in the role of intermediaries in the process of art collecting. “The art business used to be a village where people knew each other and there was a lot of trust, but the expansion in the market has led to greater difficulty in knowing who you can trust,” says Kettle.

The growth of advisers can also vex artists themselves, who feel that they can distance buyers from what they consider the real question: whether or not they enjoy the art work. “You’ve got all these people in private banks as this is where the money is. It’s a commodity, it’s nothing to do with art. Buy what you like,” says Rachel Ara, artist in residence at London’s Victoria and Albert museum.

The US is still the world’s largest base of leading collectors, being home to more than half of them, according to Art Economics. Over the past 10 years, however, the country’s share of this group has fallen by 8 per cent, as the number of collectors from China and other parts of Asia has grown.

The biggest Asian collectors have quadrupled their share of the top 200 globally over 10 years (from five in 2007 to 20 in 2017), according to the consultancy, with mainland China home to the densest concentration of these collectors. “The internet has been a democratising force on the art world. You’ve got a lot of different parts of the world plugging in now,” says Williams at JPMorgan Private Bank.

For private banks and wealth managers, the art advisory world has become a multi-textured canvas.